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Inflation Or Deflation? Chris Martenson Says "Yes"

Tyler Durden's picture




 

Chris Martenson, whose opinions have appeared on Zero Hedge many times previously, was on Tech Ticker recently, presenting the case for why we are currently experiencing both inflation and deflation in various sectors of the economy concurrently. On the deflationary front, Martenson claims that with the 2 Year yielding 0.5% "the Fed can't continue to go forward and expand its balance sheet and so far they've been able to get away with it." As a result Martenson is convinced that once having embarked on counter-deflationary course, the Fed will have no choice but to commit itself to the fullest. Yet the reality is that courtesy of already rising commodity prices various segments of the economy already experiencing an inflationary push. Martenson acknowledges that too: "I am absolutely in the camp that we are seeing inflation in some areas and deflation in others. The continuous commodity index is absolutely screaming inflation at this point in time, but at the same time we are seeing houses decline in price, we are seeing a number of other thing decline which I think is what the Fed is most concerned about at this point in time. I think we are going to see both." So stagflation? "England is already in stagflation and we are dangerously close to it ourselves. We are experiencing both inflation and deflation, and that is squeezing workers even harder than any other condition you can experience because wages are stagnant while the price of goods and services rises" and the biggest asset of the working American, his home keeps declining. It will be up to the Fed to push the needle definitively into either side of the inflation/deflation debate tomorrow, or the whispers over the imminent arrival of stagflation will just keep getting louder.

 

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Mon, 08/09/2010 - 19:57 | 511684 Mr Lennon Hendrix
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"Squeezing the workers."

The name of the game!  This is a corporate takeover.  A controlled demolition of wealth.

Mon, 08/09/2010 - 21:40 | 511825 Hdawg
Hdawg's picture

100%

America is a communist state.

Mon, 08/09/2010 - 22:06 | 511863 Baron Robber
Baron Robber's picture

HDawg, no its not even close to communism (hard to tell which would be worse). Its crony capitalism/corporatism/kleptocratic-fascist mix - call it any of these or all of them at once, but its not communism.

Tue, 08/10/2010 - 01:15 | 512055 Hdawg
Hdawg's picture

Okay, we are at the stage just before complete Communism.  That being where government rewards the current corporate elite structure for destroying the middle class before politically turning the 'people' upon the corporate elite.  Then America will have it's Communism.

Tue, 08/10/2010 - 11:32 | 512682 Buzz Fuzzel
Buzz Fuzzel's picture

 

Cloward & Piven, Saul Alinsky?  Everything appears to be just about on schedule.

Of course business, free enterprise and corporations have to be the villains.  It is part of the plan.  Unfortunately too many corporate leaders seemed to be assisting in the vilification.

If you really want to know where we are and where we are going check out the past 10 years of Venezuelan history.

 

Tue, 08/10/2010 - 01:52 | 512071 Enkidu
Enkidu's picture

Fascist state.

Tue, 08/10/2010 - 05:49 | 512166 Noah Vail
Noah Vail's picture

We need a new name for whatever the hell this nation has become. None of the old ones quite fit.

Tue, 08/10/2010 - 12:54 | 512862 jmc8888
jmc8888's picture

Ummm no.  How come it seems just about every republican is such a dipshit they see FASCISM as COMMUNISM.

Oh that's right, because every dipshit republican who says that wants to tie in Democrats with Communism, thus if we are having communism, it's the democrats fault.

NOPE.  What we're facing is fascism.  Right-wing fascism.  Barack Obama, right wing neo-con democrat.  Yes it doesn't seem to be possible, but what the republicans are bitching about, is their own playbook being used by a democrat.

We are a fascist state, not communist.  What we are is the right-winger's dream.  

Communism my ass.  Next thing you know you'll be calling Obama emblamatic of the democratic ideal.  Or that republicans repsect the consitution. 

Nope, we've become a fascist state.  It's closer to republican side of things, the movement was republican, the reagan fascist revolution, the fascist contract with america, etc, etc.  But hey, I know REAL republicans are not fascist, and that their party has been hijacked for a couple of generations.  So no need for a normal republican (the few that exist) to feel that I'm saying I'm degredaing the republican ideal.  I'm not.  But one thing is for sure.

The problems we face, were created by fascist ideologies pushed by the republican party, and later backed by democrats, under both of their corporate and queen loving masters.

 

 

 

 

Mon, 08/09/2010 - 20:08 | 511690 mynhair
mynhair's picture

Yes, we are deflating inflation.

Any questions?

Dang, it could be we are inflating deflation.....

I get so confused....

Mon, 08/09/2010 - 20:59 | 511753 johngaltfla
johngaltfla's picture

It worked well for Zimbabwe.

Mon, 08/09/2010 - 21:34 | 511820 maddy10
maddy10's picture

Didn't housing in zimbabwe collapse along with inflation?

Wait,  I  can't use that word ,can I?

It is copyrighted by PhD's!!!!!!

Tue, 08/10/2010 - 05:21 | 512151 mephisto
mephisto's picture

It's very simple.

If you have an asset you need (house, car, future salary, wife) the dollar value will go down.

If don't have something you need (mortgage/credit card payments, future food/gas bills, mistress), the cost will go up.

Mon, 08/09/2010 - 20:05 | 511691 Waterman Jim
Waterman Jim's picture

Couldnt this be called a crack-up boom.

 

Mon, 08/09/2010 - 20:05 | 511692 the grateful un...
the grateful unemployed's picture

very funny, like a booming laugh?

Mon, 08/09/2010 - 20:26 | 511713 Monkey Craig
Monkey Craig's picture

Will the crack up boom be like Weimar or Argentina?

I believe the collapse will be epic. Never before has the world's reserve currency lost it's role (although the case could be made that gold lost that status post WW2) as the top paper dog.

Mon, 08/09/2010 - 20:29 | 511722 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

The banking system revolves around gold.  Gold never lost status.  CBs/other banks hoard gold for this reason.  It is the loan of first recourse.  Issuance of monie how ever....

Mon, 08/09/2010 - 20:36 | 511729 Monkey Craig
Monkey Craig's picture

Gold is money and nothing else. - JP Morgan

Mon, 08/09/2010 - 20:58 | 511755 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

And the bastard was right too.

Mon, 08/09/2010 - 21:17 | 511784 mynhair
mynhair's picture

Monkey gold returds.

Mon, 08/09/2010 - 21:19 | 511790 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Gold monkey relics.

Tue, 08/10/2010 - 00:14 | 512013 DoChenRollingBearing
DoChenRollingBearing's picture

.

.

Only way out is gold.  And a big fistful of $100 FRNs to get us through the Deflation.  Which will then nicely bounce off into Inflation, and I guess Hyperinflation next.

Get prepared amigos mios.

Mon, 08/09/2010 - 21:25 | 511804 Getagrip
Getagrip's picture

Actually, Great britain lost it's status as the reserve currency that we took over post WWII. 

Tue, 08/10/2010 - 02:20 | 512085 CrockettAlmanac.com
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Invergordon Mutiny

Later, in 1931, sailors on 15 ships staged what became known as the Invergordon Mutiny.

The country was in economic turmoil at the time and the Treasury was trying to get to grips with a budget deficit of £170,000,000.

A commission was set up to find savings and among its recommendations was a cut to Royal Navy pay by 10%.

Reports of the reduction broke as the fleet weighed anchor in the Cromarty Firth, but some newspapers mistakenly announced pay was to be slashed by as much as 25%.

Outraged sailors formed a strike committee and decided to disobey orders until the reduction was reviewed.

The action ran for two days before the proposed cuts were withdrawn.

The mutiny had a part to play in Sterling being taken off the gold standard - the standard international measure of a currency's value - in September 1931, leading to a cheap pound and a revival in export trade.

 

http://news.bbc.co.uk/2/hi/uk_news/scotland/highlands_and_islands/813785...

Tue, 08/10/2010 - 03:55 | 512112 Quintus
Quintus's picture

You mean like the pound Sterling did post WWII?

Mon, 08/09/2010 - 20:25 | 511716 Waterman Jim
Waterman Jim's picture

boom baby!

 

"'This first stage of the inflationary process may last for many years. While it lasts, the prices of many goods and services are not yet adjusted to the altered money relation. There are still people in the country who have not yet become aware of the fact that they are confronted with a price revolution which will finally result in a considerable rise of all prices, although the extent of this rise will not be the same in the various commodities and services. These people still believe that prices one day will drop. Waiting for this day, they restrict their purchases and concomitantly increase their cash holdings. As long as such ideas are still held by public opinion, it is not yet too late for the government to abandon its inflationary policy.'
"But then, finally, the masses wake up. They become suddenly aware of the fact that inflation is a deliberate policy and will go on endlessly. A breakdown occurs. The crack-up boom appears. Everybody is anxious to swap his money against 'real' goods, no matter whether he needs them or not, no matter how much money he has to pay for them. Within a very short time, within a few weeks or even days, the things which were used as money are no longer used as media of exchange. They become scrap paper. Nobody wants to give away anything against them.

Ludwig von misses

 

Mon, 08/09/2010 - 21:46 | 511836 maddy10
maddy10's picture

So cashmongering by institutions and individuals precedes  the crack boom

Right

How much cash does corporate america have , 2 trillion is it?

Not enough to bid up 60 trillion assets worldwide at present day prices

Mr Mises would have had a heart attack if he had seen the debt mountain that we allowed to grow

Cash on hand today is insufficient even to support existing nominal values of assets

Inflation is only plausible in essentials like Food, oil and water, Mostly state controlled and not good investments for retail portfolios

what-to-do?

Long live Big Ben

Mon, 08/09/2010 - 20:08 | 511698 AUD
AUD's picture

You haven't got it yet Durden.

You will always have both because they are the same thing.

Mon, 08/09/2010 - 20:24 | 511709 Monkey Craig
Monkey Craig's picture

please explain

Tue, 08/10/2010 - 00:32 | 512029 wake the roach
wake the roach's picture

Inflation and deflation are the same disease but which have different causes.

Both inflation and deflation are the decrease in energy value (purchasing power) per monetary unit.

Inflation occurs when the ratio of monetary units increases relative to the consumption of energy units within an economy.

Deflation occurs when consumption of energy units in an economy decreases relative to the supply of monetary units.

But because neo-classical economists believe it is far better to live in a mathematical fantasy world of infinite growth, we need to include their fantasy money called credit in our evaluation. Because the supply of credit always exceeds the supply of pure money, the destruction of this credit money naturally gives pure money increased purchasing power.

Eg. Imagine a crazy world in which there was no such thing as credit and the supply of energy within crazy worlds economy was to fall or the price of that energy were to increase (pick your cause). Given the supply of money would remain constant and that each monetary unit now entitled its owner to a smaller slice of the energy pie, each unit of money has lost some of its purchasing power (inflation) even though the supply of monetary units did not increase.

Deflation in reality is a decrease in each monetary units purchasing power. It is only through the destruction of fantasy money that never really existed that pure money gains purchasing power.

 

 

 

Tue, 08/10/2010 - 00:44 | 512037 Burnbright
Burnbright's picture

Fiat money is debt, so increasing the amount of money also increases the amount of debt, which is why the "Richest" countries in the world are also the most in debt.

 

Mon, 08/09/2010 - 20:09 | 511700 Mr.Kowalski
Mr.Kowalski's picture

Squeezing the serfs is what it's all about.. government and banksters increase their power and wealth at the expense of the working serfs. One day this will end, and it'll happen very quickly, thanks to instruments such as the CDS and overleveraging.. the very devices used in their robbery of the serfdom. Here's my version of The Day It All Ends:

http://themeanoldinvestor.blogspot.com/2010/05/update-523-worst-case-scenario.html

and the aftermath:

http://themeanoldinvestor.blogspot.com/2010/05/after-crash.html

In general I believe Mortenson is absolutely correct in his inflation or deflation scenario.. housing, employment, wages and tax collections will continue on their southward journey and certain commodities (oil,grains) will head north.

 

 

 

Mon, 08/09/2010 - 20:18 | 511708 Waterman Jim
Waterman Jim's picture

yup its all marxism.  a two tier society ...no middle class

Mon, 08/09/2010 - 20:25 | 511715 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

You are implying that Marx accurately described the oilgarchy?  Because marxism is not a two tier society with no middle class.

Mon, 08/09/2010 - 20:31 | 511725 Waterman Jim
Waterman Jim's picture

Im sure your probably right, my bad

all this pure capitalism, as we call,  is just marxism is it not?

Mon, 08/09/2010 - 20:47 | 511738 blunderdog
blunderdog's picture

Those things don't compare so well.

Marxism is a social philosophy.

Capitalism is an economic system.

It's like comparing poker with sportsmanship.

Mon, 08/09/2010 - 21:21 | 511794 New_Meat
New_Meat's picture

apples to meatloaf

Mon, 08/09/2010 - 21:31 | 511812 nonclaim
nonclaim's picture

Marxism is a stupid economic system where the basic relation production/price/consumption is turned to nothing as nobody has the means or is allowed to consume. Yet the retards always boast about increasing production while bankrupting the whole chain. It can never work and Mises demonstrated it very clearly in the '30s (IIRC).

The "social philosophy" part is just to numb the mind of the young reader into assenting to the idiocy and self-destruction.

It has not and never will work unless you consider misery, destruction and death as the only and true goal.

Mon, 08/09/2010 - 21:50 | 511841 blunderdog
blunderdog's picture

You're thinking of communism or socialism, nonc.

Mon, 08/09/2010 - 22:18 | 511882 nonclaim
nonclaim's picture

The theory versus its various implementations, sure. Not one practical experience was ever successful, failing sooner or later, because the theory if flawed as it does not generate enough wealth to sustain the system, much less growing it (thus the many methods of population curbing...).

But then, Marx was always asking for bail-outs from his good capitalist friend Engels... I concede that this part of his praxis is working fine since inception, if not stated in the theory.

Tue, 08/10/2010 - 02:37 | 512092 blunderdog
blunderdog's picture

My point is only that Marx was describing a conflict inherent in our condition.  He wasn't planning the revolution.  He just thought it was inevitable.

I'd say Christianity isn't a blueprint for bringing about armageddon, either, even though Revelation is similarly inevitable in the Christian view.

That "Marxist" is equated with "communist" in the vernacular is a symptom of the lack of precision of our modern vocabulary.

But I'm just a stickler.  I mean, hey, how many folks have actually read the shit?

Tue, 08/10/2010 - 02:46 | 512096 CrockettAlmanac.com
CrockettAlmanac.com's picture

My point is only that Marx was describing a conflict inherent in our condition.

Now we see the violence inherent in the system!

http://www.youtube.com/watch?v=o76WQzVJ434&feature=related

Mon, 08/09/2010 - 21:57 | 511848 maddy10
maddy10's picture

+100

Marxism is an idea of constant state of equilibrium

But humanity has evolved rapidly over the years

We should name the present generation as a diffferent species from those born in 50s 60s

Once we reach physical limits of Murphy's law where further computational acceleration can come from conversion of mass into energy, Marx's society has to embraced

But never beton human constancy- we are one hell of a restless species,aren't we?!!!

Mon, 08/09/2010 - 21:00 | 511752 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

To me this system is a corptocracy using neo-capitalsim as its wench to further the causes it sees fit.  From my understanding Marxism in its simple terms would be the workers controlling the means of production.  Not sure if Marxism would ever work when the owner is prone to pay for new and cheap labour, but that is the philosophy.

Mon, 08/09/2010 - 20:14 | 511702 Instant Karma
Instant Karma's picture

Frankly, I can only guess at what "liquidity" in the system really means other than 0% interest rate loans for the big players who use leverage to make a lot from a lot bet on a small move.

Liquidity also seems to mean near 0% mortgages and 0% bond yields.

Liquidity does not mean greater access to credit for consumers, nor higher wages, nor more jobs, nor bigger government benefits. Indeed local and state governments are collapsing.

However, I have seen the future. Our standard of living is declining, and will continue to decline. The prices for commodities will continue to rise because our level of consumption no longer dictates price. With the rise of the BRICs and ASIA, and Europe and Japan in better overall shape than we are, we will pay more for less.

Bigger companies may indeed do well if they compete well internationally. Stocks may do well, who knows? You don't want bonds (unless you have to put your billions somewhere).

Commodities will appreciate to a point, but remember, price is a cure for price. In order for commodities to skyrocket in dollars, the dollar has to collapse. If that happened today, the price would come back down, because demand would collapse. But as the years go by, America will dictate price less and less and other countries will pick up our declining demand. 

We're not only broke, will incomprehensibly indebted.

Those government issued pieces of paper in your purse or wallet are a convenient medium of exchange, but they're not worth anything. Diversify.

Mon, 08/09/2010 - 21:26 | 511805 New_Meat
New_Meat's picture

bad liquidity means dM3/dt is negative.  They've been hiding M3 for a long time, I'd like to see the 2nd derivative curve.  Gotta be bad as they don't publish M3 anymore.

- Ned

p.s. Sorry for the bad math representation-Knuth will punish me in the fullness of time.

Tue, 08/10/2010 - 00:18 | 512017 DoChenRollingBearing
DoChenRollingBearing's picture

Thank you Instant.

Liquidity for me means gold and a big wad of $100 FRNs to see us through the Wormhole.

Mon, 08/09/2010 - 20:24 | 511714 the grateful un...
the grateful unemployed's picture

As the personal stock market MD to this very very very ill patient, Ms Economie, let's draw this up. Patient has inflation and deflation, what could cause that? Some sort of poisoning, the body reacting to toxins, abnormally low interest rates, possible due to market manipulations. Housing assets plummet because housing went too high. Wall Street working harder, Main Street sitting on their ass. We've got to get Main Street working again, get the blood flowing. 

Inflation is okay, if we can inflate assets, while wholesale prices remain low. We still have that Chinese inflation ventilator, we use that. Deflation is like cardiac arrest, we can revive the patient, but to what point?  If we create the correct kind of inflation, it will counter the deflation, but the wrong kind of inflation will deprive the patient of the benefits of debt creation, which we all know well.

Runaway price inflation, causes relative asset deflation, which is what we're dealing with. We need some price controls, but we can't take the patient off the Chinese ventilator just yet. We can bring the patient around, but what if she can't get out of bed? 

I say this patient has toxic monetary syndrome. Fed's disease. The cure is simple, shoot every economist with a beard until the symptoms stop.

Mon, 08/09/2010 - 22:07 | 511862 maddy10
maddy10's picture

patient is a dumb alcoholic who had nearly drowned himself in booze at a weekend party

What do you do?

Send him to rehab ?

Or Krugman's bar?

'Man, he is having serious withdrawal- Give him some booze now'

Ask Big Ben tomorrow

Mon, 08/09/2010 - 20:34 | 511727 cognitis
cognitis's picture

PRC is today assuming the duty of world's primary consumer nation from US just as Japan assumed the duty of primary creditor nation from US over 20 years ago; so expect any commodity consumed by PRC to continue to increase in price, and at the same time expect any commodity consumed by Americans but not by Chinese to continue to decrease in price. Now and in the future US wages and real estate will decrease greatly in Yuan terms, while Crude Copper Iron will increase greatly priced in dollar terms.

Mon, 08/09/2010 - 22:47 | 511870 maddy10
maddy10's picture

Yeah right

china pays more and more for everything needed to make 'things'

and how can they keep selling those 103 inch plasma TVs at 699

and I phone version 204 at 99

what goes around comes back

System is broke until China stops selling below market price

As of now go watch Tiger woods

Mon, 08/09/2010 - 23:05 | 511945 GoinFawr
GoinFawr's picture

They can sell that stuff to over a billion of their own citizens (and neighbours), that's a market almost 5 times the size of the US. While the US has been offshoring its means of production and, subsequently, their technology, PRC been gobbling it all up. They's ready, willing and able. All they need now is to unload a trillion or thereabouts of USD... and to link their currency to Au/Ag, which they have been advising their citizenry to load up on for some time now...

Just sayin', the whole "We's the only game in town for consumption" hubris is wearing a bit thin.

Regards

Tue, 08/10/2010 - 00:21 | 512020 DoChenRollingBearing
DoChenRollingBearing's picture

Goin, I don't think the Chinese will make it.  They have immense problems that we do not hear too much about.

Historically, as China arrives to the stage of becoming a superpower, they find a away to screw it up.  Look at every dynasty.  The Communist Dynasty will probably look similar.

Don't sweat China.  Worry about taking care of your family.

Tue, 08/10/2010 - 06:50 | 512181 Snidley Whipsnae
Snidley Whipsnae's picture

"Just sayin', the whole "We's the only game in town for consumption" hubris is wearing a bit thin"

Agree. Lots of controversy about the % of consumption by US of Chinese junk. Consensus seems to fall around 20% at the high point...Less now.

Also agree Chinese are moving agressively into gold and are now urging purchase of in ground gold wherever possible, delivery to China of raw ore, etc...and I don't think they are being candid about their gold reserves...but, who is?

 

Mon, 08/09/2010 - 20:56 | 511747 Paul E. Math
Paul E. Math's picture

Traditional notions of inflation and deflation don't really apply here.  The terms are no longer appropriate.

If you're talking about prices, then you must specify the good, service or asset before any discussion of whether the price will rise or fall.

The price of anything, in dollar terms, depends on the amount of money being spent on that item relative to the supply of that item.

In the previous decade we had dramatic rises in real estate prices because lower underwriting standards and exotic mortgage products dramatically increased the amount of money being spent on real estate.  Supply of real estate rose but not as much as the money spent on it. 

Consumer prices did not rise in the last decade because incomes didn't rise.  People may pay for their houses with borrowed money but they pay for everything else directly with their incomes.

So now real estate prices are plummetting because we have tightened up lending standards thus reducing the amount of money being spent on real estate.  Massive foreclosures have increased the supply of homes, further exacerbating price declines.

Okay, so what about the future?

Bernanke is trying to match the decline in money supply in some areas with an increase in the money supply in other areas.

Banks have been 'recapitalized', their coffers stuffed with free money so the price of items that banks spend money on is rising.  In this environment they buy treasuries and their prop desks buy stocks.  Sovereign wealth funds are also flush with USD to spend and they are also buying US treasuries as well as commodities.  Hence the rise in these assets.

Since incomes are not rising (except for the incomes of the rich), we will only see rising consumer prices via rising commodity prices - there is a bit of a lag.

When consumer prices start to rise we are really in trouble. This is the year.  The key event is the pension crisis.  Retiring boomers have pushed the level of pension deductions above pension contributions for the first time this year.  It only gets worse from here.

The government can only sell treasuries to pay for social security and medicare.  We simply are not producing enough stuff to support retirees who are only consuming.  They produced for a lifetime and we saved none of that value.

The US and the USD is screwed.

Mon, 08/09/2010 - 21:21 | 511793 MachoMan
MachoMan's picture

And if we can't support the retirees then we'll probably default on our obligations to them...  If I was an international creditor, that would be both a joyous occasion and an incredible cause for concern.  On the one hand, the people of america would be turning on their own to pay me off, despite ridiculous deals made by people without the slightest of concern for their constituency.  On the other, it's one of the many events that foretells a default on the obligation to the international creditor...  but, ambiguity is what keeps the best alive...  so long as we're guessing or stalled, the rape van continues to be filled with the spoils of free candy.

Tue, 08/10/2010 - 00:56 | 512048 Burnbright
Burnbright's picture

Spot on. I have been trying to explain this exact same thing to so many people but they don't get it. 

Tue, 08/10/2010 - 14:04 | 512997 MachoMan
MachoMan's picture

Please don't try and explain the decrease in house prices as due to stricter lending standards...  At least give credit where credit is due (no pun intended), the lemmings have lost their taste for debt...

Tue, 08/10/2010 - 02:01 | 512076 blunderdog
blunderdog's picture

+1

Totally nailed it.

Mon, 08/09/2010 - 21:08 | 511770 Oswald Spengler
Oswald Spengler's picture

You can't have inflation and deflation at the same time unless you have two johnsons, in which case, you could have a problem.

Mon, 08/09/2010 - 21:31 | 511814 New_Meat
New_Meat's picture

two johnsons could be an incredible opportunity in the "entertainment" industry.  One can think of the finance guys saying "we only have to pay for 'one' salary?"

- Ned

p.s. I was in my mid-20's before I understood the derivation of the "Johnson Bar" although I knew the principle in 2nd grade.

p.p.s your Avatar can participate!

Mon, 08/09/2010 - 23:46 | 511986 Thomas
Thomas's picture

If you focus on only price inflation, you can. Inflation moves unevenly. The BoJ did a retrospective look at how they screwed up and concluded that they focused too much on consumer prices and ignored the contributions of equities and real estate to the overall inflation. And then, of course, you get the numbnuts who think that dropping technology prices indicate deflation. Even in the 70s, the price of technology dropped. That's the worst possible indicator of inflation.

I am rooting for deflation and largely betting on inflation. As Doug Noland put it, I am forced to use a barbell strategy (cash and hard assets). I believe that crap we need (energy) will go up (as will explicit inflation hedges like PMs) and discretionary stuff (crap at the mall) will go down.

Again, returning to the salient point, inflation moves unevenly.

Tue, 08/10/2010 - 00:26 | 512024 hound dog vigilante
hound dog vigilante's picture

OS,

Best. Avatar. Ever.

 

Tue, 08/10/2010 - 07:08 | 512186 saulysw
saulysw's picture

He's made an ass of himself ... or perhaps he's just trying to get to the bottom of things?

Mon, 08/09/2010 - 21:10 | 511775 mark mchugh
mark mchugh's picture

First of all, I just want to say Chris Martenson is one of the greats.  If we ever really get serious about education, everyone will realize that Chris's crash course is far more valuable than six years in an Ivy league school studying economics under the likes of Bernanke, Jeremy Siegel and Roger Ibbotson.

http://www.chrismartenson.com/crashcourse

The problems that we face today are the fallout of putting idiots with PhD's in places where cops belong.  Price stability. We all understand what that means, right?  Yet the banksters managed to find "geniuses" who couldn't follow simple instructions and put them in charge (Greenspan & Bernanke).  So house prices were allowed to soar while wages stagnated and these clowns somehow rationalized it away, instead of taking the actions their job descriptions required.  They lost the balance.

Funny thing about price stability, once you lose it, it's very difficult (if not impossible) to get it back.  And considering the same clowns who broke the system are trying to fix it, no one should be surprised at what's happening now.

 

Mon, 08/09/2010 - 21:26 | 511802 Frankie Carbone
Frankie Carbone's picture

 

+100 oz of .999 fine gold. 

I love that Crash Course. I'm a bit surprised, shocked actually, that more ZeroHedgers are not members of Chrismartenson.com. I know that there are a lot of CM.com folks that post here. 

The ZeroHedge crowd and the ChrisMartenson crowd would get along extremely well in my opinion. 

In fact, you'll see threads riddled with ZH articles all the time on the www.chrismartenson.com forums. 

Mon, 08/09/2010 - 22:36 | 511910 mark mchugh
mark mchugh's picture

In general, I'm not a joiner, but CM is awesome.  The way he explains things just sticks with me.

Mon, 08/09/2010 - 21:27 | 511809 molecool
molecool's picture

Well, anyone who can read an exponential curve should have known a decade ago that we are heading into a melt-down. It's all third grade math, folks...

Mon, 08/09/2010 - 21:46 | 511835 New_Meat
New_Meat's picture

@mark, thanks for the reference, study:=queued up;

My starting point (well, I was in OK, Jimmy Carter was my big boss, teaching skulls full of mush to lend dignity), was Friedman's (gasp) "Free to Choose" 12 part program.  Breath of fresh air.  Book is still around: cheap

http://www.abebooks.com/servlet/SearchResults?sortby=17&sts=t&tn=free+to...

(I love ABE-all over CA, Britain, US)

I'd say negarory on "cops", evidently they watch porn all day, every day.  Even I don't know how to do that.

Bot Lewis' big fat economics book (he as re-publisher).  So I'm crawling back through "creative destruction" and "clear the market".

I used to do honest work as a control engineer.  The Econ 101 thing of "jump condition" never resonated with me.  Now, I'm (much) older  and am getting it.

So yes, price stability only returns after intervention is gone and markets "clear" (what a concept).  I'm in the "silent cal" camp: clear it all out, reset.

But Southside Chitown, not so much.

Persevere all.

- Ned

Mon, 08/09/2010 - 23:00 | 511938 mark mchugh
mark mchugh's picture

Good stuff, Ned.  I'm a reset button guy myself.

Thanks to Bernanke, Friedman is guilty by association in my mind, which is probably unfair.  I'll see if I can get my hands on some.

Mon, 08/09/2010 - 22:44 | 511920 fearsomepirate
fearsomepirate's picture

Price stability is nonsense.  Ask the computer industry.  Consumers do not always demand the same things in the same ratios at the same levels.

Mon, 08/09/2010 - 22:44 | 511922 fearsomepirate
fearsomepirate's picture

Price stability is nonsense.  Ask the computer industry.  Consumers do not always demand the same things in the same ratios at the same levels.

Mon, 08/09/2010 - 23:47 | 511990 Thomas
Thomas's picture

I am on my back with a pinched nerve and watched crash course for the third time last night. I then wanted to slice my wrists.

Tue, 08/10/2010 - 06:15 | 512167 Frankie Carbone
Frankie Carbone's picture

Once you get over the shock you'll be alright. Look at it this way. You're facing the reality of the situation now, while it's still convenient for you to do so. Imagine all those poor schmucks that won't face reality until reality faces them. 

You don't want to be one of them. Really. 

Mon, 08/09/2010 - 21:13 | 511779 Haole
Haole's picture

This was news perhaps 3 - 4 months ago, now it's just some talking head waaaaay behind the curve.

Mon, 08/09/2010 - 21:17 | 511782 Getagrip
Getagrip's picture

This is not rocket science. Inflation for stuff that's a need. Deflation for stuff that's a want-for now. Soon everything will be a need just to live above the level of existing. Welcome to the matrix. 

Mon, 08/09/2010 - 21:49 | 511840 New_Meat
New_Meat's picture

then arbitrage?  Reallocate? or will the O-bots prevent? - Ned

Mon, 08/09/2010 - 21:22 | 511795 molecool
molecool's picture

"and the biggest asset of the working American, his home keeps declining."

If I hear this one more time I'm going to puke (too late). A 'home' is exactly that and nothing more - a place to live and to raise children - not an 'asset' to be leveraged for creating value and wealth. So what if your home shoots up in price and triples since you bought it? So you sell it and now what? You have to live somewhere, right? So, you'll have to buy something in the same price range most likely, so you gained nothing! The only way to squeeze profit out of flipping houses is to buy at the bottom and sell at the top. And how often do you think that happens in a generation? You maybe get that chance once in your lifetime if you're lucky.

The real estate bubble was nothing but yet another American style 'get rich scheme' luring suckers into nation wide ponzi scheme. Why does everyone want homes to be expensive for fuck's sake? I for one want real estate to be as cheap as possible so that I don't have to spend six or seven multiples of my annual income to purchase a home when I'm ready. Besides the only sustainable multiple is 1x - 1.5x the annual income - anything beyond that is pushing into bubble territory, which is why I refused to buy in the past decade.

You'll try to explain that the average Joe/Jane Schmoe and all you get is a blank stare. I hope they all burn with their $700k underwater mortgages. Time for anyone idiotic to buy into such silly schemes (and participating in further feeding the banksters) to pay for their excessive greed and naivety.

Mon, 08/09/2010 - 21:28 | 511811 Getagrip
Getagrip's picture

Amen!!

Mon, 08/09/2010 - 22:41 | 511915 fearsomepirate
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My fiancee's been talking about buying a house.  She has about 20 grand saved up and can buy a small home.  For cash.  In Mexico.  Where a middle-class income is about 20 grand a year.  1 year's middle-class income for a house?  Yes, please.

Too bad I'll have to pay expat taxes to the big, bad, US of A to subsidize all those fartwits with their $700K underwater mortgages.

Tue, 08/10/2010 - 00:37 | 512033 Oracle of Kypseli
Oracle of Kypseli's picture

Additionally, expensive houses also come with higher taxes, since tax is on a price % basis.

Your house needs to appreciate 4% for standard average inflation, an additional say 3% for taxes another 3% for upkeep another 3% for insurance and another 3% for aging and major repairs.

Hence, 16% appreciation per year just to stay even. If a big house is your way of showing off wealth, why don't you rent and hang a copy of your bank account or your P&L statement in the back of your jacket.

   

Tue, 08/10/2010 - 09:16 | 512331 Rockfish
Rockfish's picture

+1000

Mon, 08/09/2010 - 21:57 | 511842 economicmorphine
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Inflation and deflation are terms used to describe the size of the money supply.  Thus, it is IMPOSSIBLE to have inflation and deflation simultaneously.  Rising prices are not inflation.  The money supply is shrinking.  Prices are falling across the board, perhaps not uniformly, but they are falling.  Let me give you an example.  There are two family owned Mexican restaurants on a corner in my small Texas town. About six months ago, one raised their prices.  The other held firm.  Rising prices, right?  Wrong.  All the customers simply went to the one across the street.  Now, Senor Rising Prices is Senor Closed Down.  That's deflationary because his cooks and waitstaff are now unemployed.   So even though prices were rising, the effect was deflationary.  Mexican restaurant two doesn't dare raise prices and so far they are surviving.  Smart people running that restaurant.

All around me I see people TRYING to raise prices and all around me I see the consumer rejecting them.  I never thought I'd see the day when Texans were driving Priuses, but they are and in large numbers.  There's a Super Duty for sale on every corner.  That's deflation.  That's people saying I refuse to pay more for gas.  

I see middle class people dropping health care and using great logic about it.  The pioneers, when they settled Texas, didn't have health care....why should I?  Brilliant.  And deflationary.  The same is also true of college educations.  Distance learning and community colleges are thriving.  4 year universities are living off their endowments.  What are they going to do when they're gone?  Google Dana College and find out.  

The fact of the matter is that what we are all feeling is the pain of adjusting, BUT WE ARE ADJUSTING, whether we realize it or not.  We may think we're paying more, but in many cases we're not.  We're buying less.  And the adjustment is deflationary.  

Mon, 08/09/2010 - 22:38 | 511913 fearsomepirate
fearsomepirate's picture

Contractions in the money supply don't happen simply when people buy cheaper things instead of more expensive things.  They happen when borrowers stop borrowing, since our primary vehicle of money-creation is credit issuance.  There are lots of reasons this might happen, and consumers not borrowing money to buy expensive things, but living within their means certainly can be one of them.

Mon, 08/09/2010 - 23:50 | 511993 Thomas
Thomas's picture

Don't forget velocity. By example, Beanie Babies kept dropping in price even after production stopped. The same can happen to a currency. If faith is lost, hyperinflation ensues. The dildos at the Fed think they can tap the breaks and gun the accelerator at will. I think they are a bunch of kids at an amusement park driving the car around a track, not realizing that they do not control the car.

Tue, 08/10/2010 - 00:08 | 512010 mark mchugh
mark mchugh's picture

I think they are a bunch of kids at an amusement park driving the car around a track, not realizing that they do not control the car.

Very funny!

Mon, 08/09/2010 - 21:56 | 511847 paladin
paladin's picture
by Paul E. Math
on Mon, 08/09/2010 - 19:56
#511747 you hit the home run in your post we are in the end game...
Mon, 08/09/2010 - 22:43 | 511918 maddy10
maddy10's picture

actions speak more than words

People in control own duh-llars

and until they diversify their personal wealth into something else

Stop believing the "end of USD " even though it is true

Follow the 'big- money' guys

Tue, 08/10/2010 - 00:25 | 512021 Oracle of Kypseli
Oracle of Kypseli's picture

True! But what if they loose control? That's the scenario people need to prepare for. 

Mon, 08/09/2010 - 22:34 | 511907 fearsomepirate
fearsomepirate's picture

He's probably talking about real-life Marxism.  The Marxism of the fairy tales and story-books, where the division of labor has ended, and every man has developed every faculty equally to its maximum, and people just spontaneously produce and distribute everything society needs, does not and cannot exist.  Real-life Marxism always has two classes:  The planners, and everyone else.

Mon, 08/09/2010 - 22:56 | 511933 the grateful un...
the grateful unemployed's picture

it could be, there is no SYSTEMIC solution to the problem, in which case, boy are we f**ked...

Mon, 08/09/2010 - 23:07 | 511947 Implicit simplicit
Implicit simplicit's picture

I'm not sure if anyone really knows what will happen for sure, but intuition tells me its not going to be pleasant for many people as they struggle.

 Most everyone will feel the pain either from loss or empathy.

Mon, 08/09/2010 - 23:14 | 511956 zaphod
zaphod's picture

My portfolio is conservatively loaded up on energy, MLPs, miners, industrials & gold.

Do not own a house because back in 2001 when I was first entering the market, I thought it was an overvalued scam, missed some gains but am now avoiding the loses. Instead have rented cheaply for the past 10 years.

For conservative savers like me, how is this inflation/deflation scenario bad. I say bring it on, when houses are 30-40% lower and my portfolio is up another 50%, then I'll buy....

Mon, 08/09/2010 - 23:54 | 511988 Yardfarmer
Yardfarmer's picture

I was visiting my friend the other day at his bike shop. He got to talking with a customer about the Brooks saddles displayed on his walls. His customer pointed out a cheaper Brooks, a black one with steel rivets and they got to talking about the Raleigh 3-speeds back in 1970 that had that particular saddle as a stock component. The saddle presently retails for about $49.95 and I was shocked when I heard him say that the entire Raleigh 3-speed w/ Brooks saddle retailed for that amount in '70. Gold was about $40/oz. at that time. I asked him what a comparable 3-speed bike would retail for today. $1600...my portfolio is conservatively hedged with 50 lb. bags of hard red and white wheat berries, pinto beans and rice, a wonder junior grain grinder, a Mossberg.12 gauge and ample amounts of just weights and measures.

 

Tue, 08/10/2010 - 00:52 | 512044 Caviar Emptor
Caviar Emptor's picture

For the record, I have been posting about simultaneous inflation and deflation for a year now. I coined the term "Double Whammy Economy" to describe this state of affairs, which was previously undescribed and thought to be an economic "impossibility". 

I am happy to see that over the recent months and weeks more and more notable people in the economics and financial community are coming around to seeing this way. I am also still amused at how confused and emotional many people, even here on ZH, get at the notion that you can have both inflation and deflation working together. But that's usually because they are viewing facts through the prism of pre-conceived notions about the world of economics. Empirically, there is abundant evidence that while some sectors of the economy are deflating, others are going in the opposite direction. When you understand the notion that we are not in a purely supply/demand driven economy and that the Fed and Treasury along with lawmakers have been treating the US economy as their own private laboratory for experimentation, then you begin to understand how imbalances will inevitably develop that can create such an anomaly. Keep in mind that when you get both deflation and inflation, you don't need much of either together to have an additive toxic effect far beyond what only inflation or deflation alone could cause. In a word, money printing on a massive scale along with mis allocation of money has allowed some areas to be deprived of money (deflate) while others have been crammed full of money (inflate).

To make it simple: Incomes are and have been deflating in real terms for over 30 years. Employment has deflated due to outsourcing and "supply-side" policies aimed at weakening collective bargaining, and is now deflating even more since the crisis. Real estate is deflating. Retirement assets and anticipated contributions from social security, medicare, pensions and even 401Ks are deflating. However: raw materials, energy and food have been inflating, especially when one considers the current depressed level of economic activity. Oil is back to boom time levels despite a glut. So are many other key commodities, in effect defying gravity and surging despite decreased demand. But it's not limited to commodities. Because the banking sector got bailed out and inefficiencies were never corrected plus the tolerance of fantasy accounting and the perception of TBTF, all manner of financial transaction costs are inflated, as is consumer interest on credit cards. Insurance costs are inflating. So are healthcare costs, education, transportation, telecommunications and taxes increases have already been introduced with more on the way.

Consumers and small businesses are in the eye of the storm, getting double whammied. As a result there will be further retrenchment in discretionary spending. Businesses will cut costs further and reduce their workforces. All of this will continue to spiral downward.

Keep in mind that monetary easing, stimulus spending and "supply-side" economic policies are ALL to blame. Not just one individually. It was the stated goal of Reagan era economics to encourage outsourcing, weaken collective bargaining and spend on stimulus spending. Tax policies were instituted to favor capital accumulation and penalize income. All these and many more factors which I have previously discussed have led to the current state of affairs. There are no readily apparent solutions in economic theory or teachings.  

 

Tue, 08/10/2010 - 07:04 | 512187 chrisina
chrisina's picture

If you define inflation and deflation as price increases in certain categories and price decreases in others of course it's not impossible to have both simultaneously. That's pretty much been the case since money exists on this planet. So with that definition, having both inflation and deflation at the same time is nothing new... It's a pretty useless definition.

If you define inflation and deflation as increase or decrease in the overall supply of money relative to the goods and services available, then you can't have both simultaneously. With that definition, we've had inflation pretty much since WWII and have recently entered in a deflationary period.

Tue, 08/10/2010 - 09:24 | 512356 gmak
gmak's picture

+1

Tue, 08/10/2010 - 01:15 | 512054 Hdawg
Hdawg's picture

.

Tue, 08/10/2010 - 07:55 | 512221 belogical
belogical's picture

In my opinion we only have commodities because of the changes made that allow speculators into the market with no desire to take delivery only manipulate it. Remove that and you would see deflation in all the commodities as well.

Tue, 08/10/2010 - 11:13 | 512633 Grand Supercycle
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SP500 important chart update :

http://stockmarket618.wordpress.com

Do NOT follow this link or you will be banned from the site!